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Long-term review

Economists estimate that the value of palladium showed the longest growth in history and peaked. Meanwhile, experts are trying to understand the causes of this phenomenon.

Exchange Rates 14.02.2019 analysis

Analysts recorded an unprecedented rise in the price of precious metals over the past two years. This turned out to be useful for producers of palladium and delighted investors who have long positions in contracts for precious metals. At the beginning of 2017, the palladium spot price was about $700 per 1 ounce but in January 2019, the quotes reached an impressive $1,440 per 1 ounce, which means the price doubled. A slight correction followed later and now, for 1 ounce equates to $1380.

According to experts, one of the main reasons for the increase in the cost of precious metals is a reduction in production. Norilsk Nickel is considered to be the largest metal producer in the world. In the fourth quarter of 2018, the company reduced its production by 10% to 632 thousand ounces and for the whole year of 2018, the figure decreased by 2% to 2.729 million ounces. The head of sales at Norilsk Nickel, Marcus Moreira, said that the company would like to systematically develop palladium production rather than adapt to drastic price changes. He noted that the impressive price fluctuations cause serious concerns of the leadership.

In analyzing situations from the past that could lead to high demand for palladium, experts draw attention to dieselgate in which Volkswagen was involved in a scandal with harmful emissions that unfolded in 2015. It served as a driver for the growth in demand for precious metals, where 85% is provided by automotive engine manufacturers and currently, palladium is actively used in the production of catalysts for gasoline engines.

The situation with palladium is alarming for a number of experts. According to John Butler, an analyst at the Mitsubishi concern, "overheating" of the market for this precious metal is possible in the near future. He believes that the rise in the price of palladium will not last long. The expert notes that the investment demand in the over-the-counter market for the precious metal is very high, while the industrial demand for it is steadily declining. According to the Mitsubishi forecast, the average cost of palladium will remain at $ 1201 per 1 ounce in 2019.

Strategists of the London Association of Precious Metals Markets presented their forecast for the current year on palladium, which looks extremely negative. Analysts of large banks and brokerage companies expect a significant drop in precious metal prices. Many of them predicted a decrease in the cost of palladium in 2018 but their calculations were erroneous. Recall that at the end of last year, prices for precious metals continued to rise, which was the longest in history. Nonetheless, pessimism is characteristic of many market participants, who believe that palladium quotes will never return to the level of $1,440 for 1 ounce.

Exchange Rates 14.02.2019 analysis

Viele Grüße,
Analytiker: Larisa Kolesnikova
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